Boeing Snags United Order With Low-Priced 737s

The development costs on Boeing Co.’s (NYSE: BA) 737-700 aircraft were paid off long ago. That gives Boeing a lot of wriggle-room on selling the plane, and it is very likely that Boeing used some of that space to snag an order for 40 of the single-aisle jets from United Continental Holdings Inc. (NYSE: UAL).

The news must be bitterly disappointing to Canada’s Bombardier, which is trying to compete with Boeing and Airbus in the single-aisle jet market with a new CS100. But whatever advantage the CS100 has in fuel efficiency is negated by the low cost of oil and Boeing’s ability to beat any price Bombardier can offer. The CS100 is expected to enter service by the end of this coming June, but Bombardier’s order book for the new plane has been stuck at 243 for more than a year.

The CS100’s list price is $71.8 million, but Leeham News reported that due to Bombardier’s write-off of $3.2 billion in the plane’s development costs, the price of the plane may have been lowered to the upper $20 million range. Even if that’s right, Boeing can still undercut Bombardier.

At a list price of $80.6 million per plane, the 40-jet order is valued at around $3.22 billion for Boeing, but the actual price United is paying is probably far less than that.
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The 737-700 is Boeing’s smallest single-aisle plane, and United said that it plans to take delivery of the new planes beginning in mid-2017 and replace a portion of the smaller jets that the company’s regional partners now fly. United expects to cut the number of 50-seat planes in its fleet in half by 2019. The 737-700 can carry 126 passengers in a two-class cabin configuration or 144 passengers in a single-class cabin.

Boeing’s stock traded up about 2.4% in the noon hour Thursday, at $125.03 in a 52-week range of $115.14 to $158.83.

Southwest Airlines also said Thursday that it would order 33 Boeing 737-800s, a deal that would be worth about $3.2 billion to Boeing at a list price of $96 million per plane.